19. The classical long run view of the economy shows that changes in AD will: a.

Question

19. The classical long run view of the economy shows that changes in AD will: a. have no effect on the level of production. b. have no effect on the price level. c. have an unpredictable effect on the price level. d. Both A and B are true. e. Both A and C are true. 20. The AS/AD model is unable to show a situation in which we have _____ and _____ at the same time. a. inflation; growth b. deflation; growth c. inflation; depression d. deflation; depression e. inflation; deflation. 21. Which of the following is most associated with Monetarism? a. Flaws in the market are the cause of economic disruption. b. Investment falls because of a lack of “animal spirits.” c. Monetary rules are preferred to discretionary policy. d. Increasing government spending is the most reliable way to a successful economic recovery. e. All of the above. 22. Which of the following has been relatively stable over the last thirty years? a. The velocity of M1. b. The velocity of M2. c. The velocity of MZM. d. All of the above. e. None of the above.

Explanation / Answer

19. The classical long run view of the economy shows that changes in AD will have no effect on the level of production and have an unpredictable effect on the price level because according to classical economists , economy is at full -employment. Therefore option (e) is correct that is both (a) and (c) are correct.

20. The AS/AD model is unable to show a situation in which we have inflation and deflation at the same time.  So, option (e) is correct.

21. Monetary rules are preferred to dicretionary policy is most associated with monetarism.

22. None of the above . Option (e) is correct.

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